Member firms of the Financial Industry Regulatory Authority (FINRA) often communicate internally about products or services offered through the firm, and label documents that are not to be shared with persons outside the firm as “internal-use only” material. Communications that are purely internal, and not shared with anyone outside the firm, are often supervised as part of the firm’s training or general supervisory procedures. In recent years, however, FINRA has contended, primarily in the context of enforcement actions, that internal communications not shared with persons outside a member firm can be “Institutional Sales Material” under National Association of Securities Dealers (NASD) Rule 2211, and therefore subject to the standards FINRA uses to evaluate communications with members of the public under NASD Rule 2210(d)(1). NASD Rules 2210 and 2211 are commonly referred to as the “advertising rules,” and address the approval, recordkeeping, filing, review requirements, and content standards for six categories of “Communications with the Public.”1 Rule 2210(d)(1), titled “Standards Applicable to All Communication with the Public,” requires (among other things) that communications be fair and balanced, and that they provide a sound basis for evaluating the facts in regard to any security or type of security (hereafter referred to as the “Content Standards”). The Content Standards prohibit members from omitting any material fact or qualification that would cause the communication to be misleading, and prohibit members from making any false, exaggerated, unwarranted, or misleading statement or claim in any communication with the public. FINRA’s recent position regarding the interplay between the Content Standard rules and purely internal materials has not yet been adjudicated by a FINRA hearing panel or the Securities and Exchange Commission (SEC). Indeed, many in the financial industry are not aware that "internal-use only" material may be scrutinized for compliance with the advertising rules during regulatory examinations or by the FINRA Department of Enforcement.
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